Author: Xu, Weihua Michael
Title: The impact on China stock market from new IPO regulation change in January 2016
Advisors: Wei, Steven (AF)
Cheng, Agnes (AF)
Degree: D.B.A.
Year: 2020
Subject: Going public (Securities) -- China
Stocks -- Prices -- China
Hong Kong Polytechnic University -- Dissertations
Department: Faculty of Business
Pages: 93 pages : color illustrations
Language: English
Abstract: In January 2016, the China Securities Regulatory Commission (CSRC) reformed the Initial Public Offering (IPO) rules. It is just one more step in the evolutionary history of China's IPO policy, yet it has a substantial impact on China's stock market. First, we use an event study methodology to research the market's initial reaction to this policy change. The most significant change of the new rules is it drops the prepaid capital requirement for all IPO subscription. Trillions of dollars capital which has to be locked up for IPO subscription previously is released into the stock market after new IPO rule being taken into effect. We track the return of treated high-quality stocks during the event period and find a significant cumulative abnormal return (CAR). The treated stocks' long-term performances are also shifted as a result of the new policy and this creates a good opportunity for our further investigation. We use the OLS regression analysis on a sample collected from China-listed companies dated from 2012 to 2019. We find significant positive changes in the retail shareholder's impact on stocks return. The negative association between stock return and the retail shareholder percentage decreases significantly after the new IPO rule is taken into effect. We also find the association between stock return and trading turnover changes significantly and becomes more negatively correlated after the new IPO rule. Another finding is the predicting power of EPS and SIZE factors on stock return changes significantly after the new IPO rules change. Both EPS and SIZE factors become more positively associated with the stock's return, suggesting an investor's preference for high earning quality and large-cap stocks. Our finding demonstrates that CSRC, China's capital market regulator, successfully intervenes in the stock market to promote a less speculative, more stable, and efficient capital market. Last, we find the negative association between retail shareholder and Tobin's Q ratio, a commonly used indicator for the company's value, decreases significantly after the new IPO rules change. The association between Tobin's Q and the stock turnover ratio decreases significantly as well. These two extra results are consistent with our other results, suggesting a positive shift of the role played by retail stock investors. To sum, CSRC has successfully regulated the stock market activities in January 2016. Using the new IPO rule to encourage investors to buy and hold high-quality stocks and decrease excessive and irrational trading activities, especially from retail investors, the overall market efficiency and high-quality stocks' relative returns are significantly improved.
Rights: All rights reserved
Access: restricted access

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